Power Finance Corporation’s (PFC) Q3FY18 earnings were below estimate on interest income de-recognition (of INR6.5bn) in SDR/S4A account (of INR101bn). Meanwhile, earnings were supported by provisions write-back (of INR2.2bn) given upgrades from stress pool. Encouragingly, Q3FY18 marks the quarter where upgrades have been crystallising on a guided path (INR67.5bn from NPL, INR13.7bn from restructured book); consequently, stress pool (NNPL plus restructured) fell to 26.0% (29.5% in Q2FY18)—a trend management believes will sustain. Meanwhile, operating performance was soft as NII fell >30% YoY, a derivative of lower NIMs (down >30bps to 3.85%, interest income reversal) and softer <10% loan growth (muted derivative). Given softer core metrics, we are revising down FY18/19E our EPS estimates by 8%/9%. At CMP, the stock trades at 0.7x FY20E P/BV for RoE of 14-15%, rendering favourable risk-reward. Maintain ‘BUY’ with TP of INR171.